When choosing between a Society and a Company Limited by Guarantee (CLG) to register a
ministry in Kenya, the best option depends heavily on the specific nature, scale, and long-term
vision of your ministry. Both have distinct characteristics, advantages, and disadvantages.
Note: This comparison is based on the assumption that you do not have the intentions of seeking
a PBO status
Society (Without PBO Status)
Suitability:
➢ Simplicity (Relative): Still the simplest and most common route for basic religious
gatherings and small-scale community groups.
➢ Traditional Recognition: Culturally, a “society” is the most understood and accepted legal
form for a church or religious ministry in Kenya.
➢ Lower Administrative Burden (Initially): Without the PBO Act’s strict reporting, the
compliance burden on a simple society could be perceived as lower, though this can be a
double-edged sword (see disadvantages).
Advantages (Without PBO Status):
➢ Ease of Establishment: Generally, less complex to draft a constitution and register
compared to a CLG’s Memorandum & Articles.
➢ Lower Initial Cost: Registration fees are typically lower.
➢ Direct Fit for Religious Purposes: The Societies Act specifically caters to religious
organizations.
Disadvantages (Without PBO Status):
Perception: While very professional, the company designation might feel less spiritual or
community-oriented to some traditional ministry members compared to a society.
Conclusion:
For a small, traditional church or purely religious ministry focused primarily on worship and
member-centric activities, where extensive community development or large-scale projects are
not planned:
A Society might still be the marginally better option due to its simpler initial setup and traditional
acceptance. However, be acutely aware of the weaker limited liability and the need to proactively
apply for KRA income tax exemption (which is not guaranteed and might be limited). Without a
PBO framework and tax exemption, a society also lacks the external validation of public benefit,
which could affect future funding.
For a ministry that anticipates any of the following, even without PBO status:
➢ Significant asset acquisition (land, buildings).
➢ Running formal programs (schools, clinics).
➢ A strong need for explicit limited liability protection for its leaders.
➢ A desire for a clear, professional governance structure.
➢ Potential for future growth into more complex activities (even if PBO is not sought
now).
A Company Limited by Guarantee is the more robust and safer choice. Its superior limited
liability protection for leaders and clear corporate governance outweigh the higher administrative
burden. However, you would still need to separately apply to KRA for income tax exemption based
on your charitable/religious objectives, but the underlying structure is stronger
Limited Liability (Weaker): While a registered society has separate legal personality, the
extent of limited liability for its officials and members is less explicit and robust than that
offered by a CLG. If the society incurs significant debt or legal liability, the personal assets
of the officials could be at greater risk, especially if there’s any mismanagement or failure
to keep the society’s affairs strictly separate.
Tax Implications (Less Favorable):
➢ Income Tax: Without PBO status, a society’s income (from donations, offerings, or
any other source) is technically taxable unless it explicitly applies for and is
granted a specific tax exemption certificate from KRA under Paragraph 10 of the
First Schedule to the Income Tax Act (for advancement of religion or relief of
poverty). This exemption is not automatic upon society registration and requires a
separate application to KRA, which involves proving charitable purpose and non
distribution of profits. Even with this, the scope might be narrower than PBO
exemptions.
➢ VAT: A society would be subject to VAT if its taxable supplies exceed the threshold.
Exemptions for religious bodies are usually specific and might require direct
application to KRA, and are not as broad as those for PBOs.
➢ Customs Duty: No automatic exemption for imports.
➢ Donor Incentives: Donations to a society without PBO status and KRA exemption
certificate are generally not tax-deductible for the donors. This is a huge
disincentive for large donations from individuals or corporations.
Perceived Credibility: Without the formal corporate structure of a CLG or the public
benefit recognition of a PBO, a simple society might struggle to gain credibility for larger
projects, international funding, or partnerships.
Vetting Delays: Still subject to National Intelligence Service (NIS) vetting, which can cause
significant delays.
Lack of Clear Enforcement of Non-Profit Status: Without the PBO Act’s oversight,
ensuring that a society truly operates on a non-profit basis and doesn’t engage in private
benefit can be less transparent and potentially subject to less scrutiny, but also means
fewer formal benefits.
Company Limited by Guarantee (Without PBO Status)
Suitability:
Strong Legal Structure: Best for ministries that prioritize strong legal identity, clear limited
liability, and formal corporate governance.
Asset Protection: Ideal for ministries that plan to acquire significant assets (land,
buildings, vehicles) and want robust protection for those assets, separate from individuals.
Professional Operations: Suited for ministries that will run professional operations,
potentially including schools, health clinics, or other structured programs, even if not
explicitly seeking PBO status.
Future Flexibility: Provides a more versatile legal platform if, in the future, the ministry
does decide to pursue PBO status or engage in more complex activities.
Advantages (Without PBO Status):
Robust Limited Liability: This is the primary advantage. The personal assets of directors
and guarantors are strongly protected from the company’s debts and liabilities, limited to
the nominal guarantee amount.
Separate Legal Personality: A CLG is a distinct legal entity, making it easier to hold
property, enter into contracts, and manage its affairs professionally.
Clear Governance: The Companies Act provides a clear framework for directors’ duties,
board meetings, and financial accountability, which can foster trust and efficiency.
Potential for KRA Tax Exemption (Separate Application): While not automatically exempt,
a CLG can apply for a specific tax exemption certificate from KRA under the Income Tax
Act if it demonstrates its established solely for religious or charitable purposes and its
income is applied for these purposes (similar to societies). This exemption is not automatic
and is often less comprehensive than PBO status.
Perpetual Succession: The organization continues indefinitely, regardless of changes in
leadership.
Disadvantages (Without PBO Status):
More Complex and Costly Setup: Higher initial registration fees and legal costs due to the
detailed documentation required (Memorandum & Articles).
Mandatory NIS Vetting: All directors and often key members are subject to NIS vetting,
causing significant delays.
Stricter Ongoing Compliance: Subject to the full compliance burden of the Companies
Act, 2015:
➢ Annual Returns: Mandatory annual filing with the Registrar of Companies.
➢ Audited Financial Statements: Required to file audited accounts annually, which
can be an ongoing expense.
➢ Company Secretary: May need to appoint a qualified company secretary, incurring
additional costs.
Tax Implications (Without Exemption): If a specific KRA exemption is not obtained (or is
denied), the CLG would be subject to:
➢ Corporate Income Tax (30%) on all its income.
➢ Standard VAT rules (registering if above threshold, no special exemptions unless
specifically granted on a case-by-case basis for charitable activities).
➢ No automatic customs duty relief.
➢ No tax deductibility for donors.
Disclaimer: This article is for informational purposes only and does not constitute legal advice. You should consult with a qualified legal professional for advice on your specific situation.